This is unlocked by using the sauna either in your house or in the island cottage.
To use the sauna in your house, find the knobs on the bottom of the sauna stove. One is the thermostat and the other is the timer. Turn both clockwise as far as they will go to max out the temp and time the stove is on.
Now grab the bucket and leave the sauna, closing the door behind you (otherwise the heat escapes). Fill the bucket with water from the bathroom faucet by turning the black knob on the left of the shower fixture and placing the bucket under the water.
Now you wait. Maybe work on the car, drink some beers, watch Topless Gun on TV.
Once you've waited awhile, look through the glass on the sauna door at the thermometer on the wall above the seats. Once that reaches ~50 degrees, you can use it.
Take your bucket inside (close the door behind you), and set it down. Now grab the ladle that is in the sauna and push the use button (F by default). Now you can click on the bucket to scoop up some water and right-click to throw the water onto the stove coals. The hit detection is a bit wonky here, so it may take a few tries to make the steam.
Once you've made steam the achievement will pop.